Search and seizure at residential premises ruled illegal without prior Section 131(1A) notice and valid suspicion reasons

Gauhati HC held that search and seizure conducted at petitioner's residential premises was illegal and without jurisdiction. The court ruled that notice under Section 131(1A) must be issued before conducting search under Section 132(1), not after. The authority failed to demonstrate reasons to suspect income concealment, which is mandatory before search operations. Since taxing statutes require strict interpretation and both essential conditions - having reasons to suspect concealment and issuing prior notice - were absent, the search violated express provisions of Section 131(1A). The writ petition was allowed.

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Issues Involved:
1. Legality of the search and seizure conducted on 02.12.2020.
2. Validity of the notices issued u/s 131(1A) post-search and seizure.

Summary:

Issue 1: Legality of the search and seizure conducted on 02.12.2020

The petitioner challenged the search and seizure operation conducted at their residential premises on 02.12.2020, asserting it was illegal, without jurisdiction, and violated the mandatory provisions of the Income Tax Act, 1961 ("the Act"). The search was based on an authorization dated 02.12.2020 issued by the Principal Director of Income Tax (Investigation). During the search, cash, jewelry, and other documents were seized, and a restraint order u/s 132(3) of the Act was passed concerning two bank lockers.

Issue 2: Validity of the notices issued u/s 131(1A) post-search and seizure

The petitioner argued that the notices issued by the Deputy Director of Income Tax (Investigation) u/s 131(1A) on 29.12.2020, 05.01.2021, 21.01.2021, and 28.01.2021 were illegal as the search had already been conducted. The petitioner contended that u/s 131(1A), notices could only be issued before taking action u/s 132(1)(i to v) and not post-search. The petitioner relied on the decision of the Allahabad High Court in Anita Sahani v. DIT (Investigation) 266 ITR 597.

The Income Tax Department argued that Section 131(1A) empowers officers to exercise the powers mentioned in Section 131(1) even if no proceedings are pending, and it can also be invoked for a preliminary inquiry before search operations. They further submitted that post-search inquiries under Section 131(1A) are common to obtain further elucidation on information available with the authorities.

The court examined Section 131(1A) and concluded that the power under this section is not independent but is for making inquiries and investigations relating to concealed income before taking action u/s 132(1)(i to v). The court referred to various judgments, including those from the Madhya Pradesh High Court, Kerala High Court, and Allahabad High Court, which supported the view that notices u/s 131(1A) must be issued before conducting a search.

The court held that the search conducted on 02.12.2020 without issuing a notice u/s 131(1A) was illegal and without jurisdiction. The subsequent notices issued post-search were also deemed illegal. The court emphasized that taxing statutes must be interpreted strictly, and any ambiguity should benefit the taxpayer. The court quashed the authorization dated 02.12.2020, the search and seizure conducted on 02.12.2020, and the subsequent notices issued u/s 131(1A).

Resultantly, the writ petition was disposed of, setting aside the search and seizure and the impugned notices.

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